Capital Allowances

Annual Investment Allowance (AIA)

The ‘annual investment allowance’ gives tax relief at 100% on qualifying ‘plant and equipment’ in the year of purchase. AIA will be reduced from £100,000 to £25,000 from April 2012. With this the first £100,000 spent on equipment in one year by a business will be offset in full against the profits for that year. This allowance should cover most items of plant and machinery used by an ophthalmic practice, although cars will not be included in this total. Where the practice spends more than £100,000 in one year the excess will be written off against profits at a rate of 20% or 10% per year on a reducing balance basis. Moveable equipment will attract the higher 20% rate, and equipment integral to a building (e.g. central heating, air conditioning, lifts etc) the lower rate of 10%.

Unused Annual Investment Allowance from any particular year cannot be carried forward to future years. Opticians planning to spend a significant amount on qualifying expenditure, such as an OCT, may therefore wish to consider the timing of their investment to ensure that it is as tax- efficient as possible.

From 1 April 2012 (corporation tax) and 6 April 2012 (income tax) the annual investment allowance is being reduced to £25,000. Many ophthalmic businesses will have an accounting/chargeable period that spans 1 or 6 April (6 April for sole traders and partnerships), so the AIA will have to be calculated pro rata for the period before and after the decrease.

For a company that prepares its accounts for the year ended 30 September 2012, the maximum AIA available for the period overall would be £62,500. This is computed as 6/12 x £100,000 (£50,000) + 6/12 x £25,000 (£12,500).

The curious point is that the transitional limit so computed applies (in effect) only to expenditure incurred before 31 March/ 5 April. AIA for expenditure which is incurred after 31 March 2012/ 5 April 2012 in a transitional period is restricted to just the relevant proportion of the new limit.

Thus if a company with a 30 September 2012 year-end incurs £100,000 of relevant expenditure in April 2012, it will qualify for AIA of just £12,500; by contrast the same expenditure incurred a month earlier will get AIA of £50,000. Even odder, if the accounting period is shortened to end on 31 March 2012, expenditure incurred in April 2012 as part of the ‘non-transitional’ accounting period ending on 31 March 2013 will potentially qualify for AIA of £25,000.

To ensure the full potential of this relief is achieved the company will need to get the timing of the expenditure right.

The maximum AIA is tabulated below, assuming the transitional rules are applied:

Year end

AIA

30/04/2012

£93,750

31/5/2012

£87,500

30/6/2012

£81,250

31/7/2012

£75,000

31/08/2012

£68,750

30/09/2012

£62,500

31/10/2012

£56,250

30/11/2012

£50,000

31/12/2012

£43,750

31/1/2013

£37,500

29/2/2013

£31,250

31/3/2013

£25,000

Where qualifying expenditure does exceed the AIA available, the balance from April 2012 only qualifies for Writing Down Allowance (WDA). This is 18% for the general plant pool.

Obviously for ophthalmic practices the issue of VAT is also an issue as due to 'partial exemption' rules VAT may not be recoverable in full. With this in mind it will be of greater importance for opticians to consider their purchasing arrangements in advance.

For more information or to discuss in greater detail please telephone Desirie Lea on 0151 348 8400 or email specs@moco.co.uk

Morris & Co have a dedicated team specialising in VAT and ophthalmic accounts and are able to provide advice and guidance on all aspects of financial accounting, taxation including partial exemption & business matters.

Testimonials

"Over a number of years Morris & Co have provided me with sound financial and business advice. Their in depth knowledge of my particular sector has proved invaluable and they explain my accounts in a way that is easy to understand. All my questions are answered promptly and efficiently and I really appreciate their level of expertise."David Evans, R T Booth & Co Ltd

"When appointing an accountant it was very important to me to select someone who was not only knowledgeable but friendly and approachable. I have always received proactive, professional advice and I know that the specialist advice I require to run my business is only ever a phone call away. A VAT full cost and apportionment calculation was recently undertaken for my company. As a result of this, my percentages have reduced, thereby saving me additional money."Ian McGarvey, Ian McGarvey Opticians Ltd

"Having had dealings with Desirie Lea of Morris and Co from the very inception of my company, I have always been impressed with how approachable everyone has been, from the partners to the receptionists. I had spoken to several accountants before instructing Desirie to take charge of my accounts, and from the first phonecall, Desirie impressed me with her forthright manner and her perceptive analysis of various scenarios I put to her. She is always on the ball and is a pleasure to deal with."Lloyd Griffiths, Lloyd Griffiths Limited

"Desirie and her team have been acting on my behalf since 2002 and I am delighted with the service they provide. As specialists in the ophthalmic sector, they are able to take away the stress of dealing with the partial exemption calculations for VAT purposes, which is a real bonus. I have regular meetings with them at my premises to discuss strategic issues and plan for the future. Management accounts are prepared on a quarterly basis for my company which includes a detailed analysis/commentary of my trading results. I would have no hesitation in recommending the services of Morris and Co to my fellow professionals."Anne O'Loan, Niluain Ltd

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Contact Desirie Lea on:

0151 348 8400 or email specs@moco.co.uk for a FREE no-obligation discussion and for information about how we can assist you in maximising your tax relief of an asset purchase or for advice on the best means of financing your asset .